One Band's Experience with Streaming and Spotify

I'm feeling compelled to write about streaming and Spotify since it's been in the news so much lately. Ever since Taylor Swift pulled her catalogue from the popular streaming service, musicians, fans, and critics have been trashing Spotify for paying "unfair" royalties and "ripping off" musicians. I categorically disagree with these opinions. TRN's experience with streaming has led me to believe that Spotify is a good thing and will be a welcome source of streaming revenue throughout our career.
I still remember the first time I used Napster and P2P. It was 1999 and I was in the basement of my good buddy Ben Wood's house gorging on "free" music. I was typing in every song I could think of and downloading it in seconds over his lightning fast connection. It was a revelation. It was also illegal and incredibly unfair to the artists and rights holders that worked so hard to produce and distribute these works. But there was something so incredibly satisfying about having such a huge amount of music at your fingertips, ready for consumption. Of course it was also incredibly unreliable. Files were usually low quality or not correctly labeled. It took a lot of effort to sift through everything and find what you actually wanted.

Fast forward to 2011 when Spotify--after years of negotiations with the big labels--finally had its US release. I immediately signed up for a free trial and then started paying $9.99 a month to access it on my phone a few months later. It is an incredible deal and, in my opinion, severely underpriced. I would pay $30 a month for it. Those same feelings of excitement that I got from Napster are there with Spotify, only it's much more reliable. From the consumer's point-of-view it is easily the most useful music consumption product available today.

So what about from the artist's perspective? Does Spotify rip off musicians and labels? I don't think so. Let's dig into The Right Now's data to see why. [TRN is by no means a household name or a mega-selling act. We are modestly selling records, touring as much as we can, and building our career at a slow burn. Keep that in mind.]

Streaming your music for free is a fact-of-life for modern artists. You must make your music easily accessible to fans, talent buyers, and industry folks or risk obscurity. TRN has streamed our records on our website, external websites (Soundcloud, YouTube, and long gone sites like myspace), and paid platforms (Spotify, Beats Music, etc) since 2010. We've gotten a decent number of streams and some revenue. Here's the skinny:

Obviously we don't expect to make money from free streaming on our website or Soundcloud. But I think the YouTube vs. Spotify picture is really the big issue here. Adele's manager pointed this out the other day: get 10 million views on YouTube and you've got a viral hit, but get 10 million spins on Spotify and you've lost millions in record sales. That doesn't make sense to me. What is clear is that the royalty rate from YouTube is a pittance compared to the 1/2 cent that we get from every Spotify spin. YouTube is by far the largest streaming platform in the world yet they pay out almost nothing. Plus (much like Napster/P2P) the service is unreliable with poor quality control. Anyone can upload your music to YouTube and you won't see a dime from those spins.

Spotify has undeniably changed the consumption patterns of our fans. This is evident in the iTunes sales of our two full-length records which came before and after Spotify's 2011 U.S. release (Carry Me Home in March 2010 and Gets Over You in April 2012). Despite a larger fanbase and more publicized release for Gets Over You in 2012, Carry Me Home sold nearly twice as much on iTunes (overall digital sales were about even since we sold a ton of Gets Over You through our website). Gets Over You did far better with streaming, both on Spotify and our website. My guess is that Spotify turned a lot of iTunes downloaders into streamers. That certainly affected our bottom line and ability to recoup what we spent on the record. But far more people consumed our music which is the probably more important for long term growth of the band.

Taking a closer look at our song "He Used To Be" is also illuminating. Even though we recorded it with the Gets Over You material, "He Used To Be" wasn't digitally released until this year (it was the A side of our official Record Store Day 7" in 2012 so we kept it "vinyl only"). We got word that it was going to be included in a huge video game called Watch Dogs so I released it on iTunes and Spotify a few days before the game came out in May of this year. That turned out to be a good idea. Here are some numbers since May 2014:

YouTube views: 50,408
Spotify streams: 20,536

Total streams: 70,944

As I pointed out before, the YouTube ad revenue is pretty insignificant. Despite having 2.5 times more YouTube streams we've made over 4 times more money through Spotify on this tune.

We've had about 1% of the "He Used To Be" streams convert into paid downloads on iTunes (and we get about $.78 from each download). I have no idea what most bands see in terms of streaming vs. downloads but 1% doesn't seem very good to me at first glance. However, as a percentage of total revenue on "He Used To Be," streaming accounts for 21% of the revenue as opposed to 81% downloads. I would imagine that this percentage will shift toward streaming over time. iTunes sales are tapering off for "He Used To Be" while streaming is holding steady. Of course it take A LOT of streams to equal the income from a single download: at a $.005 royalty rate from Spotify we would need 156 streams to get $.78. Over the course of 5 or 10 years we will probably get more from streaming on this tune. Big time artists with hits are already seeing more money from streaming as opposed to downloads in some markets.

So what's the overall takeaway from diving into TRN's streaming data? Are we making significant money from streaming? Definitely not. But I do not believe that streaming is taking the place of downloading or that fans are stealing from us by streaming our music. To me, everyone that streams our songs for free (or pays a tiny amount to do so on Spotify/YouTube) would probably just not consume our music if their only choice was to pay for it. By giving them the chance to hear us for next to nothing we are (hopefully) creating a relationship with a fan that will result in financial support down the road. So what if they don't pay for our digital release? Maybe they will buy a ticket to a show, a t-shirt, or fund a Kickstarter.

Consumption of music is all about comfort and convenience. Case in point: even though our records are far cheaper directly through our website, far more of our customers buy our songs on iTunes. The same holds true for streaming: listeners would rather stream from Spotify than our website. My advice to Taylor Swift and all musicians? Make it as easy as possible for people to consume your music. Forge a lasting relationship with fans by thinking of your digital downloads as loss leaders. Sell them vinyl, merch at shows, concert tickets, house concerts, and all manner of stuff relating to you and your brand. Start raising hell about Google & YouTube's horrible payments. Raise even more hell about getting data on the folks that purchase your music on iTunes and stream your songs on Spotify (an email is worth way more than your royalty rate). And embrace streaming. It killed illegal file sharing and will make you money over the long run. It's the future whether you like it or not.